The short-term rental (STR) market is booming thanks to platforms like Airbnb and VRBO making it easier than ever to turn vacation homes into profitable businesses. But while most STR owners focus on bookings and amenities, there’s a powerful tax strategy they often miss: cost segregation combined with bonus depreciation.

This approach — long used by large real estate investors — can significantly reduce your taxes, boost your cash flow, and free up capital for reinvestment. And yes, it can work even if you own just one rental property.

How Cost Segregation Maximizes STR Profits

Cost segregation identifies and reclassifies portions of your property into shorter depreciation schedules — 5, 7, or 15 years instead of the standard 27.5 years for residential real estate.

When paired with bonus depreciation, you can deduct 100% of qualifying assets in the year they’re placed in service.

Here’s what that means for STR owners:

• Furnishings, décor, and equipment — from couches and beds to coffee makers and patio furniture — can be written off much faster.
  
• Applies to new and existing properties — even if you’ve owned the rental for years, a lookback study can capture missed deductions.
  
• Substantial savings on modest properties — for example, a $400,000 vacation home might yield $100,000+ in first-year deductions with the right approach.
  
• Potential to offset other income — if you qualify as an active investor under IRS rules, you may use these deductions against W-2, business, or investment income.
  
  

The Short-Term Rental Exception for Active Status

Normally, rental real estate is considered passive unless you meet strict Real Estate Professional tests. However, STRs can qualify for an “active” status exception if they meet certain IRS requirements, such as:

• The average rental period is 7 days or less, OR
  
• The average rental period is 30 days or less and you provide substantial personal services to guests.
  

If you meet these rules and materially participate in managing your property, you may be able to treat your STR as an active business — allowing bonus depreciation losses to offset other types of income.

How to Put This Strategy in Play

1. Schedule a cost segregation study with a qualified firm to break down your property into depreciable categories.
   
2. Apply 100% bonus depreciation to assets with shorter lifespans, in line with 2025 IRS rules.
   
3. Enjoy improved cash flow — the tax savings you keep can be reinvested into upgrades, additional properties, or other investments.

Helping Hosts Save More

Whether you own one beach condo or multiple mountain cabins, we can help you:

• Perform IRS-compliant cost segregation studies.
  
• Identify whether you qualify for STR active status.
  
• Time deductions strategically to maximize savings.
  
• Coordinate with your CPA to ensure correct tax filings.

Bottom Line

Cost segregation isn’t just for big investors — it’s a smart, accessible strategy that can put more money back in your pocket from day one.

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